Harley-Davidson puts on the brakes

MILWAUKEE -- Facing worries about the economy and consumer spending, Harley-Davidson Inc. is going a little slower with the expansion of its Wisconsin operations.

In a conference call with analysts Friday, CEO Jim Ziemer said the company had a "dreadful" view of the fourth fiscal quarter that ended Dec. 31.

Net income fell 26 percent to $186.1 million, or 78 cents per share, from $252.4 million, or 97 cents per share, a year ago. Revenue was down 7.7 percent to $1.39 billion from $1.5 billion in the fourth quarter of 2006.

Ziemer called the sales environment "challenging" for this year and said dealers were worried about the direction of the economy.

"Consumer confidence is low and housing credit issues persist. All of this adds up to a weak retail sales environment for major discretionary purchases, including our motorcycles," Ziemer said.

Worldwide retail sales of Harley-Davidson motorcycles were down 6.1 percent in the quarter, from a year earlier, including a 14.2 percent drop in the U.S. market.

In response, Harley has been cutting its shipments so that dealers aren't stuck with inventory. Shipments for the quarter were down 12.5 percent to 81,206 units.

The company also is taking a cautious view of its Wisconsin expansion plans. It has delayed some aspects of the plans, due to the current business climate.

In November 2006, Harley employees represented by Local 2-209 of the United Steelworkers agreed to accept lower wages for new employees, and other concessions, in exchange for the company's promise to invest about $120 million and create about 120 new jobs at the Menomonee Falls, Wis., plant.

Wisconsin officials also offered Harley state income tax credits if the company invested at least $300 million in its expansions and created at least 200 additional full-time jobs in the state by 2010.

In Wisconsin, Harley has operations in Milwaukee, Menomonee Falls, Wauwatosa, Franklin and Tomahawk.

While plant expansions continue to move ahead, some of the plans have been delayed, said Harley spokesman Bob Klein.

"I don't have specifics on what the timing is, but I do know that parts of the expansion are proceeding and will be up and running in 2008," Klein said.

Harley, like many other consumer-product companies, has been hit hard by the economic slowdown. As motorcyclists see their cost-of-living expenses rise and the equity in their homes crumble, they're being more cautious about spending.

Likewise, Harley is being cautious about its 2008 outlook.

The company has pledged to ship fewer motorcycles than what it expects dealers will sell. That should help shore up prices.

First quarter shipments are expected to be between 68,000 and 72,000 motorcycles, compared with 61,761 bikes in the first quarter of 2007.

But last year's first-quarter shipments were down nearly 15 percent because of a three-week strike at the company's plant in York, Pa.

"We will be cautious about how we proceed in 2008," Ziemer said. "I have absolute faith that when the U.S. economy rebounds, as it always has, we will be extremely well positioned to capture future growth opportunities. Until that time, we will continue to take the necessary actions to protect our brand."

Harley expects moderate revenue growth this year and earnings per share growth between 4 percent and 7 percent compared with 2007.

Analysts are expecting a drop in revenue to $5.6 billion for 2008 and earnings per share of $3.79, according to a poll by Thomson Financial.

The bright spot in 2007 was growth in international markets, where Harley's motorcycle sales were up more than 17 percent in the fourth quarter.

Shipments of Buell motorcycles, a Harley-owned boutique brand that's popular in Europe, were 3,137 units nearly flat from the year before but still part of Harley's long-term sales strategy aimed at attracting younger riders.

"There continues to be a lot of opportunity to grow outside of the United States," Ziemer said.